AP HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.67B
• Operating Income: ¥287M
• Net Income: ¥630M
• Earnings per Unit (EPU): ¥44.93

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A mixed quarter—solid top-line growth and sharp operating profit improvement, but headline net profit was boosted by non-recurring items and sits atop a very thin equity base with tight liquidity. Revenue rose 5.2% YoY to 106.67, while operating income jumped 82.4% YoY to 2.87, lifting the operating margin to 2.7%. Ordinary income increased to 2.22 (+658.2% YoY), but the large gap versus profit before tax of 6.63 implies sizeable extraordinary gains (~4.41) below operating level. Net income reached 6.30 (margin 5.9%), aided by a low effective tax rate of 4.9%, which is unlikely to be sustainable. Gross profit was 67.48, implying a high gross margin of 63.3%, consistent with a restaurant model emphasizing value-add and in-house sourcing but possibly also reflecting accounting classification. Operating margin expanded roughly 114 bps YoY (to 2.7% from ~1.5%), evidencing operating leverage as SG&A growth lagged revenue growth (implied). However, cash generation lagged earnings: operating cash flow was 3.30 versus net income of 6.30 (OCF/NI 0.52x), signaling earnings quality concerns. Liquidity is strained with a current ratio of 0.52 and significant short-term borrowings of 30.32 against cash of 6.62. Financial leverage is very high (D/E 10.87x; financial leverage 11.9x), inflating ROE to 104% on a small equity base (equity 6.04). Interest coverage is adequate at 6.79x, but the capital structure relies heavily on short-term funding, raising refinancing risk. Free cash flow proxy (OCF – capex) was about 2.32, but investing cash flows overall were unreported. The quarter’s strong net profit is not purely operational and should normalize as extraordinary gains and tax rates revert. Near term, the focus must be on sustaining operating margin gains while improving working capital to ease refinancing pressure. Forward-looking, revenue momentum is constructive, but the combination of low liquidity, high leverage, and earnings quality issues keeps the risk profile elevated until balance-sheet repair progresses.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 5.9% × Asset Turnover 1.488 × Financial Leverage 11.87x = ROE 104.3%. The largest driver this quarter was Financial Leverage (11.9x) magnifying returns on a very small equity base, followed by a step-up in Net Profit Margin to 5.9% driven by extraordinary gains and a low tax rate. Asset Turnover at 1.49x (half-year revenue vs period-end assets) remains healthy for a restaurant operator but is not the swing factor. Business drivers: Operating margin improved to ~2.7% from ~1.5% last year as operating income rose 82% on 5% revenue growth, indicating operating leverage and likely better cost discipline and/or mix; however, the outsized jump in net margin versus operating margin stems from non-operating/extraordinary items (PBT 6.63 vs ordinary income 2.22) and a low effective tax rate (4.9%). Sustainability: Operating margin gains may be partially sustainable if driven by efficiency, but the extraordinary contribution and tax rate are non-recurring/mean-reverting. Concerning trends: SG&A detail is unreported, but given revenue +5.2% and operating income +82.4%, SG&A likely grew below revenue; still, earnings quality is questioned by OCF/NI of 0.52x. Monitoring required on whether wage and rent pressures re-accelerate and compress margins.

Growth Assessment

Revenue grew 5.2% YoY to 106.67, suggesting steady demand recovery. Operating income expanded 82.4% YoY to 2.87, indicating improving operating leverage. Ordinary income rose to 2.22 (+658%), but profit before tax of 6.63 shows a large extraordinary tailwind this quarter. Net income margin at 5.9% is well above the operating margin of 2.7%, reinforcing the one-off nature of earnings uplift. EBITDA of 4.87 implies an EBITDA margin of 4.6%; scope remains to improve scale efficiency and procurement. With cost of sales at 39.20, the gross margin is high at 63.3%, but durability depends on input cost trends (food inflation) and pricing power. Outlook: If revenue momentum is maintained and cost pressures remain manageable, incremental margin gains are plausible, but headline earnings are likely to normalize lower as extraordinary items and the unusually low tax rate fade. Top-line sustainability hinges on same-store sales, new store productivity, and menu pricing resilience. Near-term growth may be constrained by balance-sheet considerations (refinancing focus) limiting aggressive expansion.

Financial Health

Liquidity is weak: current ratio 0.52 and quick ratio 0.43 are well below healthy thresholds, and we explicitly warn that current ratio < 1.0 signals high short-term liquidity risk. D/E of 10.87x is substantially above the 2.0 warning level, indicating high leverage and limited shock absorption. Maturity mismatch risk is elevated: short-term loans of 30.32 exceed the sum of cash (6.62), receivables (9.71), and inventories (4.58), totaling 20.91, implying reliance on continual refinancing. Total assets are 71.67 with total liabilities of 65.63 and equity of only 6.04, leaving a thin capital buffer. Interest coverage is reported at 6.79x, which is acceptable, but the absolute debt load (short + long-term loans 44.06) versus half-year EBITDA (4.87) implies high leverage on a trailing basis. No off-balance sheet obligations were disclosed in the provided data. Overall solvency risk is meaningful due to small equity and high dependence on short-term debt.

Cash Flow Quality

OCF of 3.30 versus net income of 6.30 results in OCF/NI of 0.52x, flagging a potential earnings quality issue. The divergence likely reflects the impact of extraordinary gains and/or working capital build, though detailed working capital drivers are unreported. Free cash flow proxy using reported capex is approximately 2.32 (3.30 OCF – 0.98 capex); however, total investing CF was unreported, so this FCF proxy may exclude other investments/disposals. Financing CF was -9.78, suggesting debt repayment or interest/dividend outflows, which tightened liquidity given modest OCF. No signs of overt working capital manipulation can be concluded from the limited data, but the structurally negative working capital position plus reliance on short-term debt heightens cash management risk. Sustaining dividends or growth capex from internal cash generation alone may be challenging unless OCF improves and extraordinary supports recur (which is unlikely).

Dividend Sustainability

Dividend data (DPS, total dividends, payout) are unreported, so direct assessment is limited. With OCF at 3.30 and a simple FCF proxy of ~2.32, modest distributions could be covered if maintained at low levels, but the balance sheet’s high leverage and low liquidity argue for retention of cash to de-risk. The very high calculated ROE is not a guide to distributable capacity given its reliance on leverage and one-off gains. Policy outlook likely prioritizes deleveraging and liquidity over aggressive payouts until the current ratio and debt mix improve. Visibility is low due to unreported dividend figures.

Risk Assessment

Business Risks:

• Input cost inflation (food, energy) potentially pressuring the 63.3% gross margin if pricing power wanes
• Labor cost and staffing shortages impacting SG&A and service levels
• Demand sensitivity to consumer sentiment, particularly for restaurant traffic
• Execution risk in store operations and productivity improvements

Financial Risks:

• Low liquidity: current ratio 0.52 and quick ratio 0.43
• High leverage: D/E 10.87x; reliance on short-term loans of 30.32
• Refinancing risk if credit conditions tighten or covenants restrict flexibility
• Earnings quality risk: OCF/NI 0.52x and reliance on extraordinary gains this quarter
• Potential normalization of tax rate from 4.9% lifting cash tax burden

Key Concerns:

• Headline ROE of 104% is inflated by very small equity and non-recurring items
• Maturity mismatch: current assets (26.07) insufficient versus current liabilities (50.42)
• Interest rate risk on short-term borrowings impacting interest expense and coverage
• Limited disclosure on SG&A breakdown and investing cash flows constrains analysis

Investment Implications

Key Takeaways:

• Operational improvement evident: operating margin expanded to ~2.7% with OI +82% on +5% revenue
• Headline net profit benefited from extraordinary gains (PBT 6.63 vs ordinary income 2.22) and a low tax rate
• Liquidity and leverage are primary constraints (CR 0.52, D/E 10.87x) driving elevated refinancing risk
• Cash conversion is weak (OCF/NI 0.52x); sustaining improvements requires stronger operating cash flow
• Near-term capital allocation likely skewed to debt reduction and liquidity preservation

Metrics to Watch:

• Same-store sales and average check to gauge revenue durability
• Food cost ratio and labor cost ratio within SG&A to confirm margin sustainability
• Operating margin trajectory and gap versus net margin (extraordinary normalization)
• OCF/NI and working capital movements (AR, AP, inventory days)
• Debt mix and refinancing schedule (short-term vs long-term), interest coverage
• Effective tax rate normalization in coming quarters

Relative Positioning: Within Japan restaurant operators, the company shows improving operating momentum but is more aggressively levered with weaker liquidity than peers, leaving it more sensitive to macro and financing conditions despite recent profit improvements.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis